3/25/2002 @ 10:30AM

How A Billionaire Clan Made Money In Biotech

When
Thomas J.
Pritzker
Thomas J. Pritzker
wanted to invest some of his estimated $5 billion in net worth in a drug company, he didn’t buy into hot, flashy science. Instead, he spent a smidge of the family fortune to found a company that specialized not in developing drugs, like most biotech firms, but in marketing them. Last week, that sales company,
Reliant Pharmaceuticals
, was bought by Cambridge, Mass.-based
Alkermes
for $934 million in stock.

240710
Thomas J. Pritzker
Pritzker says that his group of investors had put a mere $150 million or so into Reliant. Now, they will own 31% of the combined company, which will be a marketing powerhouse with more than half of its over 1,300 employees in sales. Before the merger, Alkermes
had a market value of nearly $2 billion. Not bad.

“Still,” Pritzker says, “no money has come back into the cigar box. What we will have is a bunch of Alkermes stock. We’ve done very well. We hit the ball out of the park. But we’re in the middle of the race. When you’re in the middle of the race, you don’t look at the stopwatch and say that you’re winning the race. You’re doing just fine, but you didn’t win the race.”

As Pritzker tells it, Reliant Chief Executive
Joe
Krivulka
Joe Krivulka
came to him with an idea for building a pharmaceutical company from scratch. Compared with most biotechnology companies, the business plan was completely backward. Instead of focusing on some glitzy technology (see buzzwords like genomics and proteomics) it would start off selling drugs developed elsewhere.

“What we have in Reliant,” says Pritzker, “is a group of people who own products that have cash flow. They’re excellent in sales, marketing and the whole commercial side of pharmaceuticals.” Liberty Corner, N.J.-based Reliant handles U.S. marketing for drugs developed by
Novartis
and
Eli Lilly
, including cholesterol medicine Lescol and acid reflux treatment Axid. It even owns DynaCirc, a Novartis-developed blood pressure medication. That strategy brought annual sales of $277 million last year.

Alkermes brings to the table expertise in creating the systems that get drugs into the body at optimum levels–the traditional strength of specialty pharmaceutical companies like Alza, bought by
Johnson & Johnson
last year for $11 billion. Like most companies, Alkermes has expert scientists, and it has several of its own drugs in development. But much of Alkermes’ know-how is in refining and developing compounds and getting them through the clinic to pharmacy shelves.

“We’re always hunting for blockbusters,” says Alkermes Chief Executive
Richard
Pops
Richard Pops
. “But often companies make determinations of whether drugs are blockbusters or not early on. The history of the pharmaceutical industry is the history of companies being wrong.”

Reliant’s Krivulka wholeheartedly agrees: He points to
Forest Labs
and its blockbuster antidepressant Celexa, which usurped much of Prozac’s market share. “Even with Forest Labs,” Krivulka says, “they never expected Celexa to be the drug it became.”

What the new company will lack is the kind of basic science in which most biotechnology companies specialize. But leads on new drugs have become a dime a dozen as biotechs have flooded drug companies with new chemicals that might work in theory. What is often missing is the expertise to develop those chemicals into products.

The Pritzkers might seem a surprising source of that know-how. “Our family is in a lot of businesses,” says Tom Pritzker. His uncle, Robert Alan Pritzker, 75, is also a quintuple billionaire. The Pritzker clan’s wealth came partly from the Hyatt and Royal Caribbean Cruise lines, businesses he says they built from the ground up. When the family decided to get into biotech five years ago, they started by founding a San Francisco-based merchant bank, Bay City Capital, which invests their money in life sciences companies and guides those companies as they grow.